Small business help needed

[aspiring-entrepreneur]

Hi All

So glad to have found this forum, hopefully I can assist with some questions at some point myself.

Some background:

I have a Niche business that has been operating for just over 2 years now. What I do is purchase die cast models all over the world, import them and then sell the direct to consumer. The business is run from home and it is only myself and one family member employee at the moment. Initially all sales were done through Facebook groups, which then also brought in customers who now buy on Facebook as well as buy / order direct from my house.

My business was started with very small loans of $250 from 6 different friends so a total of around $1500. That initial amount was used to purchase my first batch of stock which I sold and promptly repaid the loans back in 4 - 6 weeks with a $50 interest on each of the 6 loans. This was done three times over a period of 6 - 8 months as personally I was in a very bad position financially. After the first 8 -10 months of business I was in a position to not have to take loans from my friends anymore as I had built up stock of around $8000 with the profits made.

From 8 months to almost two years the business grew really well for me getting to a point where I was averaging around $10,000 a month in sales with a gross margin of around $5,000. My mistake was that I was allowing customers to book stock without payment in effect giving them on average a 30 day informal account. Unfortunately a lot of my bigger clients ran into some trouble financially which in turn pushed the 30 days to nearly 90 and some of which never paid at all which was devastating as my cash flow just got worse and worse to a point where I had to take more loans in order to continue purchasing new stock to sell while those orders were waiting to be paid. As of 20th December I have outstanding $7,500 outstanding in stock that needs to be paid which is coming in small drips and drabs.

In order to combat this I decided that I would start to move away from the Facebook sales and in turn launch an eCommerce website, my website launched exactly a month ago. Due to the website now taking funds immediately for orders a lot of my bigger clients have fallen away which has dropped my last months sales from $10,000 down to $4,500. It also put dent into my margins as the payment processing for credit cards etc is taking around 3.5% of the full order value.

Current Financial Status

Currently I have stock with a purchase value of just short of $30,000 and sales value of around $45,000. I have outstanding loans to be paid of almost $8000

Questions

I would like to know if there is anybody here that has been in a similar situation or would be able to assist with some advice on what would be the best for me going forward. Stick it out with the lower sales volumes through the eCommerce website and have a better cash flow while trying to find new customers who are willing to pay immediately for their purchases or try have the best of both worlds and use the website as well as offer some smaller "accounts" ?

Apologies as I do not know all the correct business jargon, everything I have done to this point has been self taught, decided I really needed some advice and thus the reason for this post.

I really look forward to your feedback, any input would be considered highly valuable.

Thank you :)

[vangogh]

Welcome to the forum aspiring-entrepreneur. Sorry no one responded right away, but it was Christmas weekend. I haven't been in the same position as you find yourself now, but I'll try to help nonetheless.

It sounds like you think long term you're better off selling directly through the site and that the issue with your biggest customers now is they aren't paying their bills right away. Is there a reason you can't sell through both your new site and directly to some customers? You could still sell to your existing customers while you build up sales through the site and once those sales have increased enough, you could stop the direct sales if you want? You can see to different markets and in different ways. There's no reason you have to limit yourself to one type of customer.

As far as the processing fees are concerned, you can raise your prices a few percent to cover it, though you may find that in time you make more by keeping prices where they are and doing more volume. You can raises prices a little and see what happens.

Hope that helps and sorry it too a few days to get a response.

[HumaneHosting]

I agree charge more for online orders and be done with it. If anyone question why then just explain the processing fees, fraud risks. and even marketing expenses. :)

[Paul]

I would avoid price increases if possible. Customers don't care about your "expenses". you could raise incrementally until you see resistance.

Your bigger problem obviously is cash flow because you are carrying accounts payable. I'm not sure why. Are they resellers/retailers? If they are its not unusual for suppliers (you)to offer terms, it's just part of the business. You might ask for a deposit upfront. Even though it may not cover the actual cost it can help.

It sounds like a casual arrangement. You might want to formalize it, net 30 or 2% discount in ten days. Or even a greater discount for prepayment. Or I've seen extended terms such as 30% down, 30 in 30 days and balance in 60. Sometimes bills aren't paid because they don't have the entire amount on hand. You can make it a bit easier for their cash flow with definitive extended terms.

Last point is, how vigilant are you in collecting? Many times a gentle letter or phone call can get you on the top of their "to pay" list.

[HumaneHosting]

I would avoid price increases if possible. Customers don't care about your "expenses".

If you can "sell" them the expenses you incur it can indeed get at least enough on board to make it worthwhile.

Let's take online shopping for example...

If they are demanding it... Then simply put it up and make a "big" thing to that they can now order right in the comfort of their own homes!

After all why do you go the pump to pick up that $5 sandwich inside the shop? Because it's convenience for you right? :)

[SumpinSpecial]

Your bigger problem obviously is cash flow because you are carrying accounts payable. I'm not sure why. Are they resellers/retailers? If they are its not unusual for suppliers (you)to offer terms, it's just part of the business.

I'm on the retailer side of things and wanted to add that since I'm new in business and small, most of my suppliers only sell to me on a pay-first basis. (I have no problem with that, I like to avoid unnecessary debt.) So I agree with Paul and would also add that for your newer and/or smaller customers, start them off on a payment up front basis and after some time doing business with you, then you can "reward" them by extending them small credit terms.

BTW, kudos for how you started so small and built up. That's impressive!

[Lewis-H]

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